_Adelaide industrial assets being snapped up with ongoing strong buyer demand
Adelaide's industrial market has shown resilience during COVID-19, with strong buyer demand, particularly for prime assets in the cold storage and logistics sector with strong lease covenants, according to the latest research from Knight Frank.
The Knight Frank Adelaide Industrial Market Report August 2020 found the majority of activity in the market was in sales, with demand coming both from owner occupiers - driven to buy rather than lease due to low interest rates and removal of stamp duty on commercial property in South Australia - and investors.
“Leasing activity has remained limited as a result of the continuing trend of owner-occupation, where in lieu of leasing their property requirements, occupants are instead deciding to purchase facilities, as well as some businesses delaying decisions due to uncertainty around COVID-19,” said Head of Agency for South Australia Oliver Totani
“Over the past 12 months there has been an increase in owner-occupiers purchasing properties, including new entrants to South Australia, particularly vacant land on which to build a facility, in the northern precinct.
“Over the past six months sales activity has surged for vacant land in northern areas with the majority of transactions located in the outer north precincts such as Edinburgh and Direk, with affordability and close proximity to the interstate freight rail line and the recent complete northern connector the major drawcards.”
Research Analyst Yee Ng said the increase in demand from owner occupiers buying vacant land has led to land values in the northern precinct rising.
“Over the past six months the average land value of properties below 5,000 square metres has increased approximately 8.6 per cent for the inner north and 6.2 per cent for the outer north,” he said.
“As at July, the average land value below 5,000 square metres for the inner north was circa $250 per square metre to $260 per square metre and for the outer north was circa $60 per square metre to $120 per square metre.”
Oliver said aside from owner-occupiers, investors have also buying industrial property, with the sector showing resilience through COVID-19.
There has been increased appetite from institutional investors for fully leased industrial property, particularly long WALE assets with strong lease covenants reflected in the strong metrics shown in recent transactions,” he said
“Sales transaction activity has fallen compared to the same time last year for properties over $5 million as a result of COVID-19 and limited institutional-grade opportunities given that South Australia is a tightly held market, but the value of sales is higher.”
Yee said the report found that as at July this year industrial sales volumes in Adelaide were $198.24 million for properties over $5 million, more than the $146.55 million at the same time last year, reflecting an increase of around 35%.
“South Australia’s value proposition and an increasing national appetite for institutional grade stock continued to show a firming bias in industrial yields,” said Mr Ng.
“As at July 2020, the average blended yields stood at circa 6.50 per cent to 7.50 per cent for prime assets, representing a 75 to 150 basis point spread to prime east coast yields.”
Oliver said despite the trend towards sales, leasing demand for smaller industrial space, in the sub 1000sq m market, was receiving a good level of enquiry, particularly from the local market, while the national and corporate companies had adopted a ‘wait and see’ approach.
The report found lower tenant demand had resulted in industrial rents remaining steady over the past year and the short-term outlook was likely to remain static.
“However, rental growth is likely to grow over the medium to long-term given increased demand for new or modern accommodation from logistics sectors coupled with limited speculative supply,” said Oliver.